IPOs: No One Comes to Haier’s German Party

Bottom line: Haier's weak IPO under a new
German program to internationalize Chinese stocks owes to lack of
awareness and thin trading, and reflects challenges the new market
will face in its drive for recognition.

What if you threw an IPO and
nobody came? That's what seems to be happening for home appliance
giant Haier,
which has just made the inaugural listing on a new Sino-German
stock exchange aimed at internationalizing Chinese companies. The
program captured headlines earlier this year when it was first
announced that Haier had been selected to make the inaugural
listing. But momentum has rapidly faded since then.

I'll examine some of the reasons for the lackluster debut
shortly, and what it might mean for the internationalization of
Chinese stocks, which appears to be the bigger goal with this
program. But first let's review this latest less-than-dazzling end
to a story that began with relatively strong sentiment and big
hopes.

This particular program is the work of the China Europe
International Exchange AG (CEIEX), which was set up about
two years ago as a joint venture between the Shanghai and German
stock exchanges. Haier was selected to be the first listing due to
its status as one of China's most successful names outside its home
market, though clearly the results show it has a long way to go to
approaching bigger rival brands like GE (NYSE: GE)
and Electrolux (Stockholm: ELUX).

After the initial announcement earlier this year, the plan
disappeared until the last few weeks when CEIEX announced that
Haier would indeed be the first to list. Some of the earlier
reports said the company -- a household name in China -- was
initially hoping to raise up to $1 billion. But in the end it had
to settle for far less, raising just 278 million euros ($318
million) as the shares priced at the bottom of their range.
(English
article)

The shares opened nearly flat when trading began just an hour or
two ago, at 1.06 euros per share versus a sale price of 1.05 euros,
to be precise. I checked an hour or two into the trading day, and
the stock was back at its IPO sale price of 1.05, indicating not
too many people were too jazzed about this offering.

No Big Surprise

The result shouldn't come as a huge surprise, honestly speaking.
This kind of offshore-secondary listing is almost always exactly
that -- secondary. The fact of the matter is I'd be willing to bet
that 90 percent of the limited number of people trading in this new
stock have never seen or used a Haier appliance before in their
life. Instead, they're making their decisions based on belief that
this is a company with big future potential.

At the same time, others are pointing out that Haier has just
launched the program, meaning very few people probably know about
it at this point. So perhaps some time is just required for people
to learn about the exchange, and things will pick up from there. At
the end of the day, one analyst pointed out, the company's primary
market will always be China, where Haier is well known and the
volume of its trading is much higher.

This particular effort is part of China's broader push to
internationalize its big corporate names, which could perhaps one
day help to bring some stability to its famously volatile stock
markets dominated by mom-and-pop traders. Most of the nation's
bluest chips are already traded in Hong Kong, and many of its most
famous high-tech names like Alibaba
(NYSE: BABA) are traded in New York.

That said, a logical next question might be: Does the world
really need another trading ground for Chinese shares, since New
York and Hong Kong are already quite accessible to nearly anyone
who wants to trade in global names. My guess is that the answer is
"no", and that this particular German experiment could ultimately
fail to find much of an audience over the longer term. But that
said, there's no reason why someone who thinks highly of Haier
shouldn't buy the GDRs, since they will probably end up simply
mirroring whatever happens with Haier's primary listing in
Shanghai.